Construction Bookkeeping: Essential Tools & Tips

This ensures accurate and consistent data entry that will ultimately help you bid better on future projects. Here are some things to look for when choosing the right bookkeeping software for your construction business. The construction industry is highly susceptible to political and economic fluctuations that disrupt the supply chain.

Choosing The Right Bookkeeping Software

Most existing bookkeeping solutions automate one or more aspects of bookkeeping. However, there’s still no software available that can automate the entire bookkeeping process. Some of it is likely reserved for things like payroll, covering expenses, and paying taxes.

Bookkeeping for Construction Companies: Essential Tips

• Outsourcing your accounting can help your firm focus on growth while ensuring financial records are in top shape.
• Even better is to back up your records onto a cloud service, so they’re accessible from anywhere.
• Submit perfect pay apps on time, every time, with waivers and compliance on lock.
• Before you start a job, make a detailed budget that lists how much you think labor, materials, tools, and subcontractors will cost.
• For those who love hard work, spending time outside, and being your own boss, starting a landscaping business may be a great fit.

It is commonly used in commercial construction projects and involves using specific forms (such as G702 and G703) to request payment based on the percentage of work completed. Creating an accurate budget or cost estimate at the start of a project is essential. Budgets should be detailed and include all anticipated costs such as labor, materials, equipment, construction bookkeeping and subcontractor fees. Regular updates to the budget are necessary as the project progresses to ensure costs remain within expected limits. The software offers features like job costing, progress invoicing, and specialized reporting that cater specifically to the construction industry. Improving your process starts with understanding how construction accounting is unique, and determining the different types of job costs you can incur on each project.

Direct and indirect expenses

You need to have accurate bookkeeping not just for the sake of taxes and potential audits, but to monitor your cash flow and ensure you’re being compliant and profitable. Detailed financial records ensure better financial forecasting and help prevent overspending. Bookkeeping for construction firms requires an understanding of these specialized needs, which is the first step toward healthier finances. An experienced construction bookkeeper will be specialized in construction compliance. That could result in improved tax compliance, a decreased likelihood of mistakes or inconsistencies, and better financial reporting.

Keeping Track of Costs

The Completed Contract Method delays the recognition of revenue and expenses until a construction project is either fully or substantially completed. This method is often used for short-term or small-scale projects where it is difficult to estimate completion percentages accurately. Generate regular financial reports, including profit and loss statements, balance sheets, and cash flow statements, to get a clear picture of your company’s financial health. Using the principles of accrual accounting, percentage of completion and the completed contract method are both heavily utilized within the construction industry. Below we’ll take a look at what to keep in mind for both when structuring your chart of accounts.

What is Construction Accounting?‍

While G&A costs are not directly tied to specific jobs, they must still be accounted for within the overall financial management of the business. These costs are typically spread across all projects or allocated proportionally based on certain metrics such as revenue or labor hours. Properly managing and allocating G&A costs ensures that they do not disproportionately affect the profitability of individual projects. The Percentage of Completion Method recognizes revenue and expenses in proportion to the work completed during a reporting period.

• Construction accounting is complex, but the right system can significantly affect how smoothly your projects run.
• He has earned a finance undergraduate degree, the Indianapolis Business Journal’s Forty Under 40 award, and Arizona’s 35 under 35 award.
• Companies can control expenses with accurate accounting, which helps them to manage project budgets.
• As your construction firm oversees additional projects and engages more personnel, it gets much more critical to keep your accounts in place.
• Whether you’re managing small residential builds or large-scale infrastructure projects, mastering construction accounting is essential for ensuring profitability, compliance, and financial stability.

Remember, accurate financial data is your blueprint for success in the competitive construction world. Moreover, storing your documents electronically can help you maintain a paperless environment, thus contributing to preserving natural resources. To ensure your electronic documents are safe, you may consider using a reliable cloud-based storage platform that provides encryption and access control features.

• This includes financial statement reconciliation, report generation, and adherence to industry-specific rules.
• Construction companies typically use accrual accounting and job cost accounting.
• Before making payments, make sure that the bills are correct by comparing them to contracts and project progress.
• Examples include repairs to equipment, insurance, transportation, and software.
• These platforms provide a comprehensive suite of tools that support project planning, execution, and financial management, catering specifically to the needs of the construction industry.

• It provides detailed insights into all project-related costs, aiding in accurate cost estimation, budgeting, and profitability analysis.
• As much as they can tell you where you’ve been, they can tell you where you’re going and what to do next.
• An organization’s future course of action can be better informed with the help of financial data gained via accurate accounting.
• This type of accounting software stores data on remote servers (“the cloud”), which can be accessed from anywhere with an internet connection.
• If you want to succeed, you can’t approach construction accounting from a conventional perspective.
• Remember, accurate financial data is your blueprint for success in the competitive construction world.

Many construction companies use the percentage-of-completion method for long-term projects, as it provides a more accurate picture of financial performance over time. However, smaller companies or those with shorter projects may prefer the completed contract method for its simplicity. A construction bookkeeper plays a vital role in managing financial data for construction projects. Their responsibilities differ significantly from standard bookkeeping, as they need to account for project-specific variables like labor, materials, and job costing. For contractors, cost of goods sold (COGS) provides a vital glimpse into the profitability of a project over a specific period of time.